Cost-Volume-Profit (CVP) Analysis Lecture Notes

These flashcards cover key concepts related to Cost-Volume-Profit Analysis, including definitions and formulas necessary for understanding breakeven analysis, contribution margin, and related metrics.

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted.

Fixed Costs

Costs that do not change with the level of output, such as rent, salaries, and insurance.

Breakeven Point

The sales level at which total revenues equal total costs, resulting in zero profit.

Breakeven in Units Formula

Breakeven point in units = Fixed Costs / Unit Contribution Margin.

Unit Contribution Margin (UCM)

Selling price per unit minus variable cost per unit.

Margin of Safety

The amount by which sales exceed the breakeven point.

Target Net Income

The desired profit that a company aims to achieve.

Weighted Average Contribution Margin

An average that takes into account the different contribution margins of multiple products weighted by their sales mix.

Sales Mix Ratio

The proportionate relationship between the different products sold by a company.

Contribution Margin Ratio (CMR)

Contribution Margin divided by Sales; reflects the percentage of each sales dollar that contributes to covering fixed costs and profit.